When you inherit a house, ownership does not land in your lap automatically. The title has to pass through probate or a similar transfer mechanism, and once it does, you take on the mortgage, the property taxes, the insurance, and every maintenance bill that comes with the home. Federal tax law softens the landing with the stepped-up basis, which resets the home’s tax value to what it was worth on the day the previous owner died and can wipe out decades of capital gains. What you do in the first several months — whether you keep the home, sell it, rent it, or refuse it outright — determines how much this inheritance actually costs you.
How the Title Transfers to You
Being named in a will does not by itself make you the owner. The home has to move through a legal process, usually probate, in which a court supervises the executor as they verify debts, pay creditors, and distribute what remains. If a valid will exists, the probate court confirms it before authorizing the deed transfer. If there is no will, the court applies the state’s intestacy statute, which distributes property to surviving relatives in a fixed order.
Some homes skip probate. A property held in a living trust passes directly to the named beneficiary under the trust’s terms. A transfer-on-death deed, available in roughly half the states, works the same way: ownership passes to the designated person as soon as the owner dies. Probate itself can take anywhere from a few months to more than a year, depending on the estate and the court’s backlog.
Whichever path the title takes, record the new deed at the county recorder’s office. The recording fee is usually modest, and the filing creates the public record you’ll need to sell, refinance, or borrow against the home later.
The Stepped-Up Basis and Why You Need an Appraisal Now
Under Internal Revenue Code Section 1014, the tax basis of inherited property resets to its fair market value on the date the previous owner died.1Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent This is the single most valuable feature of inheriting real estate.
Suppose the previous owner bought the home for $100,000 and it was worth $500,000 the day they died. Your basis is $500,000, not $100,000. The $400,000 in appreciation that accumulated during their lifetime is never taxed. If you turn around and sell the home for roughly $500,000, your taxable gain is close to zero.
The step-up applies whether you inherit through a will, under intestacy, or from a living trust. The date used is normally the date of death, though an executor can elect an alternate valuation date six months later if that lowers the estate’s overall tax bill.2eCFR. 26 CFR 1.1014-1 – Basis of Property Acquired From a Decedent
Order a professional appraisal at or near the date of death. That appraisal is the document that fixes your basis. Without it, proving your basis to the IRS years later becomes difficult, and you may end up paying capital gains tax you did not actually owe.
What You’ll Owe If You Sell
If you sell for more than your stepped-up basis, the difference is a capital gain. Inherited property automatically qualifies for long-term capital gains treatment regardless of how long you personally held it, so the federal rate is 0%, 15%, or 20% depending on your income, with the 20% rate reserved for the highest earners.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Selling soon after the death usually produces little or no gain, because your basis and the sale price are close. Selling years later means you owe tax only on the appreciation that happened after the date of death, not on the gains that built up during the previous owner’s lifetime.
If You Move In
Making the inherited home your primary residence opens a second tax break. Section 121 lets you exclude up to $250,000 of capital gain from your taxable income, or $500,000 if you are married filing jointly, when you sell a home you have owned and used as your main residence for at least two of the five years before the sale.4Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
A surviving spouse who inherited the home gets a special break: you can count your late spouse’s time owning and living in the home toward the two-year requirement, which means selling relatively quickly can still qualify you for the full exclusion.4Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence Other heirs get no such credit and have to accumulate the two years on their own.
Federal Estate Tax and State-Level Taxes
Most inherited homes trigger no federal estate tax. The 2026 exemption is $15 million, so only estates above that figure owe anything federal.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill The estate, not the heir, pays that tax, and it is the executor’s job to file if the estate qualifies.
State taxes are a different story. Roughly a dozen states and the District of Columbia impose their own estate tax, sometimes with exemption thresholds as low as $1 million. A handful of states levy an inheritance tax, which the person receiving the property pays rather than the estate. A few states impose both. Spouses are almost always exempt from state inheritance tax, and direct descendants either pay nothing or face lower rates than more distant relatives. Check your state’s rules early because the numbers vary sharply.
The Mortgage Comes With the House
Any debt secured by the home survives the previous owner’s death. If there is a mortgage, it stays a lien on the property no matter whose name is on the new deed. What federal law does protect you from is the worst-case scenario: the lender cannot invoke a due-on-sale clause and demand full payoff simply because you inherited the property. The Garn-St. Germain Depository Institutions Act blocks that when a relative inherits a residential property with fewer than five units.6Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions
To actually use that protection, contact the mortgage servicer and ask to be recognized as a successor in interest. Federal servicing rules require the servicer to tell you exactly which documents they need, and once you are confirmed, you can access account information, request payoff statements, and receive borrower notices.7eCFR. 12 CFR Part 1024 Subpart C – Mortgage Servicing You still have to keep paying. Falling behind lets the lender foreclose exactly as it would against any other borrower.
Reverse Mortgages Move Fast
A Home Equity Conversion Mortgage, the most common reverse mortgage, works on a much tighter clock. The balance becomes due and payable when the borrower dies, and the servicer stops disbursing any new funds. Heirs have 30 days to satisfy the loan, though the lender can approve 90-day extensions if you show you are actively selling the home or arranging financing.8HUD. Inheriting a Home Secured by an FHA-Insured Home Equity Conversion Mortgage
You have three real choices. Pay the full balance and keep the home. Sell the home, and if the loan balance exceeds the current value, the lender will accept net proceeds from a sale at 95% or more of the appraised value as full satisfaction. Or hand the title over through a deed in lieu of foreclosure. Property taxes and homeowners insurance remain the estate’s responsibility until the title transfers or the loan is resolved.8HUD. Inheriting a Home Secured by an FHA-Insured Home Equity Conversion Mortgage
Costs That Start Right Away
Property taxes keep accruing. In some jurisdictions, transferring ownership triggers a reassessment, which can push the annual bill well above what the previous owner was paying if they had a long-standing assessment cap or homestead exemption. Missed property taxes lead to liens and eventually a forced sale.
Homeowners insurance is the bill that most often catches heirs off guard. Standard policies include vacancy clauses that limit or exclude coverage after the home has been empty for a set period, typically 30 to 60 consecutive days. A house that sits vacant during probate can quietly slip outside its own coverage. Call the insurer as soon as you can, update the named insured, disclose that the home may be unoccupied, and ask whether you need a vacant-property endorsement or a separate policy. If something burns, gets broken into, or someone is hurt on the premises while coverage is lapsed, you pay.
Maintenance does not pause during probate either. Someone has to mow the lawn, winterize the pipes, address safety hazards, and keep utilities on. Neglect drops the resale value, invites code violations, and creates liability if a visitor is injured.
Keeping It as a Rental
Rental income from an inherited home is taxable, and you report it on your federal return. You can deduct ordinary expenses: repairs, property management fees, insurance, and property taxes.
You can also depreciate the structure, but not the land, over 27.5 years, which reduces your taxable rental income each year.9Internal Revenue Service. Publication 946, How To Depreciate Property Your depreciable basis is the lesser of the fair market value on the date you convert the home to rental use or your adjusted basis, which for inherited property is usually the stepped-up basis.10Internal Revenue Service. Publication 551, Basis of Assets If you convert the home to a rental soon after inheriting, those two values will be nearly identical.
There is a catch on the back end. Depreciation reduces your basis, so when you eventually sell you may owe depreciation recapture tax at a rate of up to 25% on the cumulative depreciation you claimed, even if the home has not otherwise appreciated past the stepped-up basis.
Inheriting the House With Siblings
When several people inherit a home together, typically siblings, they usually own it as tenants in common. Each holds a percentage of the whole, not a specific room or wing. Every co-owner has a right to use the home, and no one can lock the others out. That structure forces collective decisions on repairs, rental arrangements, and any sale.
Costs track ownership shares. Courts generally require co-owners to contribute proportionally to expenses that preserve the property, such as taxes, mortgage payments, and essential repairs. A co-owner who pays more than their share to stop a tax lien or fix a leaking roof can usually seek reimbursement from the others.
Disagreements stall these arrangements constantly. When co-owners cannot agree, any one of them can file a partition action asking the court either to physically divide the property, which almost never works with a single home, or to order it sold and split the proceeds according to each owner’s share. Some states have adopted the Uniform Partition of Heirs Property Act, which adds protections like a right of first refusal and a court-ordered appraisal before any forced sale.
A voluntary buyout usually beats litigation. One heir pays the others for their shares based on a professional appraisal, takes sole title through a new recorded deed, and the other heirs walk away with cash instead of a court fight.
If You Don’t Want the House at All
You do not have to accept an inheritance. If the property carries a large mortgage, environmental problems, or tax consequences that outweigh its value, you can legally refuse it through a qualified disclaimer under Section 2518. The property then passes as though you had died before the original owner, going to the next beneficiary named in the will or under state intestacy law.11Office of the Law Revision Counsel. 26 USC 2518 – Disclaimers
A qualified disclaimer has to meet four requirements. It must be in writing, signed, and delivered to the executor, the estate’s legal representative, or the person holding legal title. It must be delivered within nine months of the date of death, or within nine months of your 21st birthday if you were a minor when the owner died. You cannot have used the property, collected rent, or accepted any other benefit before disclaiming — receiving the deed without acting on it does not count as acceptance. And you cannot direct where the property goes; it has to pass by the will or state law without your input.12eCFR. 26 CFR 25.2518-2 – Requirements for a Qualified Disclaimer
Miss the nine-month deadline or take any benefit, even a single rent check, and the right to disclaim is permanently gone. If you are even considering it, act fast and stay clear of the property until the disclaimer is filed.